Saturday, September 18, 2010

No-Fault Insurance Explained

If you’re fortunate, or depending on how you look at it, unfortunate to live in one of the twelve states that are under a non-fault auto insurance system, you can cause an accident, yet your insurance company won’t pay for the other parties’ damages.
If you live in a No-fault state (DC, FL, HI, KS, KY, MA, MI, MN, NJ, NY, ND, PA, UT) that means you live in a state that both requires drivers to carry insurance for their own protection and places limitations on their ability to sue other drivers for damages. Your auto insurance company will pay for your damages (up to your policy limits), regardless of who was at fault for the accident. Any other drivers involved will be covered by their auto insurance policies. Since all are required to carry insurance, in theory, there should be no uninsured motorists in those states. Stop laughing; the term “in theory” was used!
These states opted for the no fault insurance system because it guarantees every driver immediate medical treatment in the event of an accident. Further, it's intended to reduce the legal and administrative fees associated with insurance claims. Again, in theory, this should equate to lower premiums. Unfortunately, often times the liability issues that still remain will actually drive premium costs up.
However, because no state is pure no fault, drivers can always be held financially responsible for the cost of injuries they cause in certain circumstances – that’s the loop hole. Some states allow injured parties to sue if their injuries meet certain standard for severity, while others allow it when total costs reach a certain dollar level.
Below is a classic case of a no-fault situation. Neighbor lived in a four-plex apartment building. It had a 4-stall garage along with a 4-stall wide driveway. Because the driveway was so wide it was second nature for the tenants to pull out of their parking spots and turn around in the driveway instead of backing into the street.
One Sunday afternoon, one of the tenants decided to go visit a friend. She got into her car and began backing out of the driveway in her normal manner. When all of a sudden she felt a bump and heard a scream. At first she thought she ran over her cat who would occasionally escape. She opened her car door and found half of a body. Scared half out of her mind, she shut the car off and ran into the house and immediately called 911.
The driver was too scared to go outside at that point. As far as she knew, the half body, belonging to one of her neighbors, was still under the car and the driver was certain the injuries were serious. Her left rear wheel had crossed her body from her thigh on one side on the diagonal to above her pelvic region. The driver later learned that some strong man from across the street came over and picked up the car so she could get out from underneath.
The neighbor announced that she was feeling fine and didn’t want to go to the hospital. But the police and ambulance didn’t feel the same way so they took her the four blocks to the hospital. Turns out the neighbor was sunbathing behind her car and somehow the driver didn’t see her when she walked to her car. She ended up with no broken bones, no internal injuries; just a tire track from her right thigh across to her left stomach.
The driver felt absolutely terrible, accepted full responsibility, wanted to do everything and more to make it up to her. The next day, the driver phoned the insurance company to explain to them what had happened. They asked her two questions. #1 Does she drive? (yes) and #2 Does she own a car? (yes). The insurance company informed the driver that due to No Fault insurance the neighbor’s own car insurance would have to cover the medical costs. The driver was clearly at fault, yet the driver’s insurance wouldn’t cover the damages even though it was her fault.
The driver went as far as to tell the neighbor to sue her since it was her fault and she felt totally responsible. The neighbor merely responded, “It was just an accident.” The lesson here - next time lay on the grass, instead of the drive way to sunbathe and risk the doggy doo.
Interesting No-Fault system, wouldn’t you say?